In England’s green and fraudulent land

The currency may be less than a month old, but already wads of counterfeit euro notes are piling up at the National Criminal Intelligence Service headquarters in the City. The dawn of the euro may make life easier for currency dealers, but for NCIS’s economic crime unit it brings the headache of more counterfeiting and another vehicle for money laundering.

NCIS has already collected tens of thousands of pounds in counterfeit euros and it fears money laundering in Euroland could gain fresh impetus once euro notes and coins are circulated in 2002.

In three years’ time, the old national currencies will be phased out over six months, forcing the Mr Bigs of the black economy to unload their money. It is a hard enough job at the best of times, and NCIS wants all the help it can get. The problem is, NCIS officers believe accountants are not doing enough to combat the black economy which, according to Inland Revenue estimates, is worth a staggering #8bn. Now the crimefighters intend forcing accountants to take on a bigger role in the fight against the fraudsters.

Under current legislation any suspicious financial transactions have to be reported to the NCIS economic crime unit – which checks the information against its intelligence database.

Historically, accountants have reported a negligible amount of these cases. That number is now falling.

NCIS figures for 1997 show that out of 14,000 tip-offs over suspected money laundering, 7,000 were from banks. Only 44 were from accountants – down from the previous year’s paltry 75. NCIS’ implied message is simple: accountants have been accused of turning a blind eye to money laundering.

NCIS officers are concerned that accountants will be duped into helping set up what appear to be legitimate companies. Even an economic down-turn will not deter the fraudsters. Money laundering is definitely more recession-proof than most industries. Fees paid to money launderers have increased from around 6% in the mid-1980s to 20% now.

John Leek of the NCIS Economic Crime Unit believes accountants, with their in-depth knowledge of complex business processes, are ideally placed to spot money laundering and fraud.

‘Accountants are at fault,’ he says. ‘But some of it may be naivety because they think their client is wonderful.’

The danger signs to watch out for, he adds, are large amounts of cash coming through companies for no reason, when turnover is not related to income.

Leek argues that because the accountancy profession lacks a whistle-blowing culture there could be an increase in the number of NCIS investigations into accountants who are failing to report suspected money-laundering cases.

‘I imagine we’ll have to step-up the number of investigations into accountants who don’t whistleblow according to the law,’ Leek warns.

Leek is a fan of the Edwards Report, the government’s November review of offshore trusts, like those on the Isle of Man and Jersey, locations linked with money laundering in the past. The report recommends giving law enforcers powers to restrain assets in unexplained lifestyles, tougher penalties for financial crime and promised new consolidated legislation: all weapons in a war that is ‘not being convincingly won anywhere’, as Edwards put it. ‘Let’s get our house in order,’ urges Leek.

The relationship between accountants and NCIS has long been a tense one.

Forensic accounting experts have criticised the NCIS for failing to offer firms specific advice on when they should report suspicious transactions.

And because of stiff penalties for failing to report, the limited staff at NCIS is inundated with reports of potential money-laundering scams.

In a bid to build bridges, over the next few months NCIS experts will brief accountants on the increasingly sophisticated methods used by money launderers to ‘wash cash’.

The briefings have been set up by David Spence, president of the Institute of Chartered Accountants of Scotland, in the wake of NCIS figures breaking down the whistleblowers by profession.

Not surprisingly, many accountants resent the NCIS’s attitude, saying its education drive is not tackling the major issues facing accountants and fraud. While wel-coming the idea of more education on the issue, Simon Bevan, head of fraud investigations at Arthur Andersen, says money-laundering schemes normally involve unlisted companies outside the core Big Five business.

‘There’s more chance of laundering money within smaller companies, say for example, if you buy a pizza delivery business,’ says Bevan. ‘The Big Five don’t normally deal with unlimited companies.’

But Bevan agrees that money-laundering schemes are becoming more sophisticated.

In the past, the dodgy money was paid into banks. Now, in entrepreneurial Britain, criminals invest in a business or buy into commodities such as antiques.

Bevan is not the only accountant to stand up for his profession. Another Big Five source questions how easy it will be to tackle the perceived problems with offshore trusts. ‘The minute they try to clampdown on offshore trusts, another obscure place will decide to make a living out of it,’ he says. ‘It’s simplistic to say that if you lean on Jersey it will solve the problem.’

The often uneasy relationship between accountants and NCIS, he says, is symptomatic of a ‘knowledge gap’, not accountants’ ‘naivety’.

Others argue that an auditor should not and cannot be at the frontline of fraud investigation. ‘Auditing processes are designed to satisfy that financial processes are accurate,’ says Andrew Clark, a partner in Pricewater-houseCoopers’ fraud investigation unit.

‘They’re not about specific transactions unless specific transactions are material to the audit. Auditors are not policemen trying to root out crime. Audits are not forensic transactions.’

Clark believes banks are best placed to stop fraud in its early stages. ‘The best way to combat money laundering is when the cash physically comes into the banks. But any education on money laundering is good,’ he says.

The role of accountants in detecting money laundering is still unclear despite NCIS’s latest attempts to tailor its message for auditors and business advisors. But, says Wayne Smith, head of NCIS’s specialist crime unit: ‘Police alone will not be successful against organised euro crime.’

Whether they like it or not, accountants look set to take a higher profile in the fight against euro-crime.

Fraud committed by West African crime groups costs the UK #3.5bn a year, according to NCIS, while counterfeiting in 1997 alone cost the country just over #9m. Officers say criminals are increasingly turning to professional intermediaries like accountants to reduce the risk of detection. The NCIS economic crime unit says warning bells should ring if clients make repeated use of non-regulated financial services for currency exchange or wire transfer, regularly transfer assets to ‘innocent’ third parties or physically move currency to countries where anti-money laundering legislation is less stringent than in the UK.

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